The taxes recouped on property owned by offshore companies rose by 50% (an estimated £174m) during 2015 as a result of the Treasury’s drive to apply pressure on wealthy overseas investors.
The government’s efforts have been spearheaded by the increased rate of tax introduced in 2013 to deter people from forming companies specifically to own expensive residential property and, allegedly, avoid paying inheritance tax.
Industry commentators have suggested that while the government’s measures had gone some way to discourage the purchase of residential property through companies, the level of tax that has been collected has not grown in line with the 50% increase in the rate of tax levied on ‘enveloped’ properties. This could indicate that investors are still buying but as individuals rather than as companies.
Approximately 80% of the tax collected has come from two boroughs in Central London, Westminster and Kensington & Chelsea. Outside of London, Runnymede in Surrey – a highly affluent area that includes the Wentworth Estate – leads the tax payment table.
The ripple effect caused by leaked reports of offshore financial centres is also causing the super wealthy concern. Not only has the government mitigated the benefits of owning property through a company by removing the traditional exemptions from inheritance tax (IHT) and capital gains tax (CGT), it is now threatening to launch a register of beneficial ownership listing all of the land and property in the UK that is owned by overseas companies.
Along with the steep increases in taxes, the threat of a register of beneficial ownership will worry British companies who use offshore structures to protect their identity anonymity as well as the thousands of non-doms (those who live in the UK are officially resident in another country) who have made huge investments in British properties. Both groups are likely to resist the temptation of “de-enveloping” their property portfolios because of the substantial CGT implications.
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